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Sensex Trades in the Green; Auto Stocks Witness Buying Interest
Wed, 16 Nov 11:30 am

After opening the day on a firm note, the Indian share markets have continued to trade on a positive note. Sectoral indices are trading on a mixed note with stocks in the auto sector and information technology sector witnessing maximum buying interest. Consumer durables stocks are trading in the red.

The BSE Sensex is trading up 168 points (up 0.6%) and the NSE Nifty is trading up 42 points (up 0.5%). The BSE Mid Cap index is trading up by 1.2%, while the BSE Small Cap index is trading up by 0.8%. The rupee is trading at 67.75 to the US$.

The past week was a roller coaster ride for Indian share markets. The shock from Trump victory and the bold move of demonetization by Prime Minister Narendra Modi made markets trade on a volatile note. The effects of the above developments are seen this week too.

Apart from the global volatility, the decision by the Indian government has created some short term chaos. Frustration on account of long queues, shortage of cash and money stuck in the banks has called for a rough week in India. Apart from the general public, stock markets are also seen reacting negatively to the demonetization move. There are two reasons for this. First is the pain across sectors due to currency shortage and second is the strengthening of the US bond yield and the US dollar.

However, in our view, the above pain will be a short term phenomenon rather than a long term one. In the long run, the demonetisation move will lead to long term advantages for the Indian economy.

Please note that the demonetization move was initiated for three key reasons. First, nullification of black money hoarded in cash. Second, tackling the counterfeit currency, and lastly curbing terror financing driven by fake currency notes.

The recent move by the government in this regard is the inedible ink mark for exchanges above Rs 4,500. As per the news, those exchanging old notes to the tune of Rs 4,500 over the counter will now be marked with indelible ink. This will be done to ensure that the same people do not queue up repeatedly as the government aims to stop money laundering and ensure that the lines at banks get a little shorter. Apart from this, the government has also warned Jan Dhan Yojana account holders against allowing their accounts to be misused to launder scrapped Rs 500 and Rs 1,000 notes.

This indeed is a major move to curb black money and the effect of the same will be felt by the people hiding black money with them. We must commend the above decisions by the present government. Despite the overhanging fear of losing vote bank, the government has taken this massive step to curb black money.

To conclude, from a big picture perspective, the decision to ban 500 and 1000 denomination notes is certainly a move in the right direction. Along with the GST roll out, it will certainly give a big fillip to the India's growth story.

Vivek Kaul has written an excellent piece explaining why Mr Modi banned the Rs 500 and Rs 1,000 notes. Here, Vivek offers some economic as well as political logic to the decision. To get a detailed view of the demonetization move, please read the recent issue of The Vivek Kaul Letter (requires subscription).

Apart from the economy, the above decision is a very positive one from a stock market perspective in the long term. Once taxes are paid on the unaccounted money, the money will become legal and a part of it will flow in financial instruments including equities.

So should one go out and buy every stock one can lay his hands on?

In our view, the above move should not have any marked change in your investment approach. The principles of stock selection still remain the same: buying fundamentally strong companies, run by a competent management team and available at reasonable valuations.

Moving forward to the news from the commodity markets... Crude oil is witnessing volatility this week. This is seen as global financial markets have rebounded after Donald Trump's shocking victory and turned their focus on oversupply concerns.

Another news that has weighed on crude oil is the speculation regarding OPEC's ability to implement the proposed production cuts. The latest development here is the Organisation of Petroleum Exporting Countries (OPEC) agreeing on a long-term strategy that indicates the cartel's consensus on managing production. However, with the final verdict on the proposed output cut, there still remain much room for volatility in crude oil prices.

All eyes are now set on the OPEC meet scheduled on 30 November. The meet is scheduled to discuss a planned output cut of around 1 million barrels per day (bpd) of crude oil.

As per our friends at the Daily Profit Hunter, OPEC is a major source of the turmoil we've seen in crude oil prices of late. Check out Asad Dossani's article- How OPEC Lost Control of Oil Prices, for more on this.

To keep a tab on the movements in crude oil and other commodities, you can read the stock market commentary from the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency and commodity markets.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

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Nov 23, 2017 09:13 AM